By Gareth Vaughan
Insurance Australia Group being allowed to takeover Lumley would create "significant risk" if New Zealand was hit by another Canterbury earthquake type scenario says Michael Stiassny, chairman of rival insurer Tower.
Speaking at Tower's annual shareholders' meeting Stiassny said Tower strongly believes in competition.
"However, we do have concerns regarding recent industry developments. We are pleased the Commerce Commission is taking a close look at the proposed IAG acquisition of Lumley, given the implications for New Zealand, the insurance industry and consumers," said Stiassny.
"We believe there is significant risk from one business controlling two thirds of the personal lines market, if New Zealand was to suffer another event on the scale of Canterbury."
IAG, which already owns NZI, AMI and State Insurance, announced the proposed acquisition of Lumley in December, as part of the broader acquisition of the underwriting businesses of Australia's Wesfarmers. Taking over Lumley would lift IAG's share of the overall insurance market to about 50.5% from 41.5%, increase its share of the home and contents and vehicle insurance market to 66% from 60%, and give it 40% of New Zealand's intermediated insurance market.
In its statement of preliminary issues on IAG's takeover application the Commerce Commission said it will consider whether to define insurance products and markets as national in scope, as it has done previously, or whether to modify this approach. A fresh approach would allow the consumer watchdog to take into account whether the market in Canterbury following the 2010-2011 earthquakes warrants defining a separate geographic market for the Christchurch/Canterbury region.
The Commerce Commission will also consider the scope for customers to move to alternative insurance providers if a merged IAG-Lumley raised its prices. For its part IAG says it doesn't believe the deal would substantially lessen competition in any market.